MAS reprimands 4 financial institutions, 2 people for breaching risk management, remuneration rules

SINGAPORE: The Monetary Authority of Singapore (MAS) has reprimanded four financial institutions for breaching rules related to risk management practices and sales-related remuneration under the Financial Advisers Act, the regulator said on Tuesday (Jun 15).

The four institutions are: AIA Financial Advisers (AIA FA), Prudential Assurance Company Singapore, Aviva and Aviva Financial Advisers (Aviva FA). 

MAS also reprimanded two individuals – Mr Peter Tan Shou Yi, a consultant engaged by Aviva, and Aviva FA’s chief executive and director Lionel Chee Boon Chai – in relation to the matter. 

MAS’ deputy managing director for financial supervision Ho Hern Shin said the regulator has “dealt firmly” with these financial institutions and individuals “to send a clear message to the industry on the importance of upholding high ethical standards”.

WHAT RULES WERE BREACHED

In a media release, MAS said that during the course of its ongoing supervision, there were indications that these financial institutions may have breached regulatory requirements on remuneration practices. 

In response to queries, the regulator told CNA that these indications were whistle-blowing complaints, as well as findings from its onsite inspections and offsite supervision.

It then conducted an investigation and found “numerous instances” where remuneration was paid to supervisors – a person responsible, both directly or indirectly, for the supervision or management of a financial adviser – in contravention of requirements under the Financial Advisers Act.

READ: MAS lays out enforcement actions, priorities in inaugural report

One is the Balanced Scorecard requirements (BSC) for the sale of investment products.

Under this, the variable income of supervisors and representatives are determined by the fulfilment of non-sales key performance indicators, such as understanding a client’s needs and suitability of product recommendations. Grades are given to the supervisors and representatives every quarter.

Another is the Spreading and Capping of Commissions (SCC) requirements that apply to the sale of regular premium life policies.

Insurers and financial adviser firms are required to cap the variable income payable to representatives and supervisors to 55 per cent in the first year, and spread the remaining variable income payable over a “prescribed period”.

Both requirements were introduced as part of the Financial Advisory Industry Review in 2015.

The financial institutions and individuals had also breached the Financial Advisers Regulations and Guidelines on Risk Management Practices, which require financial institutions to put in place appropriate policies to ensure compliance with regulations.

These various breaches took place between 2016 and 2019.

READ: Strong action taken to combat financial misconduct, market abuse in Singapore: MAS

WHAT HAPPENED AT AVIVA

MAS said Aviva engaged Mr Peter Tan Shou Yi as a consultant from July 2016 to March 2020 to provide strategic advice on Aviva FA’s business.

But Mr Tan “went beyond providing strategic advice and acted as a supervisor” to representatives at Aviva FA during this period by having frequent and direct interactions with these representatives, including discussions on sales and compliance issues.

From July 2016 to April 2019, neither Aviva nor Aviva FA put in place compliance arrangements to monitor Mr Tan’s activities in Aviva FA.

MAS said for failing to put in place these arrangements, Aviva and Aviva FA had contravened the Guidelines on Risk Management Practices – Internal Controls and the Financial Advisers Regulations, respectively.

“Mr Tan had acted as a supervisor of Aviva FA by virtue of his roles and responsibilities in the firm, but Aviva FA failed to review and assess Mr Tan’s performance, assign a BSC grade to him, and determine and pay his remuneration in accordance with the BSC,” the regulator said.

“Aviva also failed to cap and spread his variable income in accordance with the SCC. In accepting such remuneration, Mr Tan also breached the SCC.”

READ: MAS bans former financial representative jailed for fraud

Aviva FA’s chief executive and director, Mr Chee, was also reprimanded for failing to “discharge the duties of his office”, said MAS.

Apart from failing to ensure that proper arrangements were in place to monitor Mr Tan’s activities, he did not properly address the issue of the poor conduct of Aviva FA’s representatives which included misrepresentations to customers regarding the nature and features of certain insurance products.

MAS said despite its repeated supervisory engagements with Aviva FA between August 2017 and September 2018 over the sales conduct of its representatives, the measures put in place “remained inadequate”.

It therefore directed Aviva FA to appoint independent external persons to conduct a "holistic review" of the company’s internal control processes, and to perform call-backs to all customers before any sales are completed. These measures remain in place.

It also required Aviva FA to investigate, take disciplinary actions against the representatives concerned and provide remediation for the affected customers, according to further information provided by an MAS spokesperson.

Aviva FA has done so, the spokesperson added, noting that the regulator will take “appropriate regulatory actions” if breaches of MAS’ regulations are established.

WHAT HAPPENED AT AIA FA

AIA FA did not review and assess the performance of three of its managing directors who had acted as supervisors, said MAS. 

It also failed to assign BSC grades and pay remunerations in accordance with the BSC, as well as cap and spread the variable income of these managing directors according to the SCC.

WHAT HAPPENED AT PRUDENTIAL

In Prudential's case, the company had appointed three individuals referred to as “Master Group Agency Manager” leaders and a consultant to act as supervisors.

But it failed to review and assess the performance of these leaders and consultant, assign BSC grades to them, as well as determine and pay their remuneration in accordance with the requirements.

Prudential also failed to put in place adequate risk mitigation procedures and compliance arrangements to monitor the activities of this group of leaders and consultant.

NO DIRECT HARM TO CUSTOMERS: MAS

A reprimand is a formal regulatory action under the Financial Advisers Act and registers “serious concerns” from the MAS regarding a misconduct.

Those issued with reprimands are required to remediate the issues “promptly”.

Asked why the MAS chose to issue reprimands in this case, the spokesperson said: “In deciding on the appropriate enforcement action for a case, MAS considers all the relevant circumstances, including the seriousness of the misconduct, the impact of the misconduct on customers or the financial sector, and any remediation actions taken.”

The financial regulator said that there was no evidence of “direct harm to customers” as a result of the breaches by the four financial institutions.

“Nevertheless, the failures are viewed seriously because the BSC and SCC requirements are intended to align the interests of financial advisory firms, supervisors and representatives with those of their customers, and promote a culture of fair dealing,” the emailed response said. 

“Non-compliance with the requirements therefore increases the risk that customers’ interests could be prejudiced.”

In response to CNA’s queries, Aviva Singapore said the lapses identified by MAS occurred prior to its merger with a consortium led by Singapore Life, which was completed in November last year.

“Following the transaction, the newly constituted Board has invested significant time and resources to address the underlying issues. We have strengthened our controls to prevent the recurrence of such issues, and these are being validated by an independent external auditor,” the spokesperson said.

Leadership changes were also done “to strengthen management effectiveness and accelerate culture change”, the emailed response said.

Prudential Singapore said it would “work closely” with MAS to further enhance its controls in relation to the BSC requirements and accompanying risk management measures with the view of resolving the issues raised.

AIA FA told CNA that it had cooperated fully with MAS during the course of investigations and would continue to work closely with the regulator for the remediation actions required.

It added that it was fully committed to protecting the interests of its customers and that no customers were affected by this matter.